This should rustle some socialist jimmies.
What they don't mention, for example, us that the highest German corporate rate is down nearly 30% and the personal nearly 10% from when I worked there. The corporate rate is already lower than ours.
Trumping Europe’s Taxes
Nations competing by lowering rates? The idea is making the Continent nervous.
By
Joseph C. Sternberg
March 2, 2017 7:33 p.m. ET
Donald Trump says many things that alarm Europeans, but one of the bigger fright lines may have come in last week’s address to Congress: “Right now, American companies are taxed at one of the highest rates anywhere in the world. My economic team is developing historic tax reform that will reduce the tax rate on our companies so they can compete and thrive anywhere and with anyone.”
What’s scary here to European ears is not the import-inhibiting border-adjustable tax plan favored by some House Republicans. They’ll relish duking that one out at the World Trade Organization. Rather, it’s the idea that tax policy is now fair game when it comes to global competitiveness.
It’s at least eight years since anyone in Europe had to think that way. One of the biggest political gifts Barack Obama gave European leaders was support for their notion that low tax rates are unfair and that taxpayers who benefit from them are somehow crooked.
Photo: iStock
Europeans pushed that line among themselves for years, complaining about low Irish corporate rates, for instance. The taboo on tax competition is central to the political economy of Europe’s welfare states, which already are unstable and quickly become unsustainable if revenues fall either from lower rates or greater competition for investment from lower-tax areas.
Mr. Obama resisted cuts to America’s 35% top federal corporate rate. He backed global efforts against “base erosion and profit shifting,” meaning legal and efficient corporate tax planning. The goal was to obstruct competition among governments by making it harder for companies to avail of legal methods to reduce their effective tax burdens.
And Mr. Obama offered little objection when Brussels launched spurious investigations into the entirely legal tax affairs of U.S. companies in Europe. Those investigations in turn offered Brussels political cover for similar cases targeted at European companies.
Europe during this span didn’t entirely eschew tax reform. Some governments, including unlikely suspects such as Belgium, managed the odd modest rate cut, especially on labor taxes. But a high-tax, slow-growth America freed Europe to pursue such reforms at a leisurely pace.
Is Europe ready for an American president who wants to inject a sense of urgency into tax cutting and competition? At best it’s a maybe.
François Fillon, the French presidential candidate most likely to slash that country’s top rates—33.3% corporate, 45% personal—is on the verge of collapse owing to a corruption scandal. His nearest sane rival, Emmanuel Macron, has promised a corporate-rate cut to 25%. But the main tax plan of the other major candidate, Marine Le Pen of the National Front—who may well win—is an extra tax on companies employing foreigners.
In Germany, Chancellor Angela Merkel’s center-right party talks vaguely about rate cuts to redistribute some of the country’s fiscal surplus back to the private sector. There’s room to cut top corporate and personal rates of nearly 30% and 45%, respectively. But Mrs. Merkel may lose, and her main opponent, Martin Schulz of the center-left Social Democratic Party, steadfastly refuses to contemplate tax cuts at all.
And that’s about it. Tax policy is off the ballot in this month’s Dutch election, unless you count promises to make the Netherlands less attractive to foreigners as a “tax haven.” Taxes aren’t under discussion in Italy as it grinds through a constitutional crisis. Spain, under pressure from Brussels, is abandoning some of its earlier tax-cutting zeal and is hunting for extra revenue.
The question now is how much longer Europe could resist widespread tax reform if Mr. Trump brings in a 20% corporate rate alongside rapid deregulation—or what the consequences will be in terms of social-spending trade-offs to a new round of tax cutting. Dare to dream that Mr. Trump manages to trigger a new debate about competitiveness in Europe.
At least Europe can take comfort in the hope that the political cover Mr. Trump takes away by relegitimizing tax competition might be replaced with a different sort of cover—stronger American growth rippling across the Atlantic, and with it more fiscal and political room for European reformers.
It’s a positive, if still somewhat tenuous, thought that the U.S. president whose election is said to empower Europe’s fringe may also end up assisting the smarter contingent of the Continent’s mainstream.
Mr. Sternberg is editorial page editor of The Wall Street Journal Europe.
What they don't mention, for example, us that the highest German corporate rate is down nearly 30% and the personal nearly 10% from when I worked there. The corporate rate is already lower than ours.
Trumping Europe’s Taxes
Nations competing by lowering rates? The idea is making the Continent nervous.
By
Joseph C. Sternberg
March 2, 2017 7:33 p.m. ET
Donald Trump says many things that alarm Europeans, but one of the bigger fright lines may have come in last week’s address to Congress: “Right now, American companies are taxed at one of the highest rates anywhere in the world. My economic team is developing historic tax reform that will reduce the tax rate on our companies so they can compete and thrive anywhere and with anyone.”
What’s scary here to European ears is not the import-inhibiting border-adjustable tax plan favored by some House Republicans. They’ll relish duking that one out at the World Trade Organization. Rather, it’s the idea that tax policy is now fair game when it comes to global competitiveness.
It’s at least eight years since anyone in Europe had to think that way. One of the biggest political gifts Barack Obama gave European leaders was support for their notion that low tax rates are unfair and that taxpayers who benefit from them are somehow crooked.
Photo: iStock
Europeans pushed that line among themselves for years, complaining about low Irish corporate rates, for instance. The taboo on tax competition is central to the political economy of Europe’s welfare states, which already are unstable and quickly become unsustainable if revenues fall either from lower rates or greater competition for investment from lower-tax areas.
Mr. Obama resisted cuts to America’s 35% top federal corporate rate. He backed global efforts against “base erosion and profit shifting,” meaning legal and efficient corporate tax planning. The goal was to obstruct competition among governments by making it harder for companies to avail of legal methods to reduce their effective tax burdens.
And Mr. Obama offered little objection when Brussels launched spurious investigations into the entirely legal tax affairs of U.S. companies in Europe. Those investigations in turn offered Brussels political cover for similar cases targeted at European companies.
Europe during this span didn’t entirely eschew tax reform. Some governments, including unlikely suspects such as Belgium, managed the odd modest rate cut, especially on labor taxes. But a high-tax, slow-growth America freed Europe to pursue such reforms at a leisurely pace.
Is Europe ready for an American president who wants to inject a sense of urgency into tax cutting and competition? At best it’s a maybe.
François Fillon, the French presidential candidate most likely to slash that country’s top rates—33.3% corporate, 45% personal—is on the verge of collapse owing to a corruption scandal. His nearest sane rival, Emmanuel Macron, has promised a corporate-rate cut to 25%. But the main tax plan of the other major candidate, Marine Le Pen of the National Front—who may well win—is an extra tax on companies employing foreigners.
In Germany, Chancellor Angela Merkel’s center-right party talks vaguely about rate cuts to redistribute some of the country’s fiscal surplus back to the private sector. There’s room to cut top corporate and personal rates of nearly 30% and 45%, respectively. But Mrs. Merkel may lose, and her main opponent, Martin Schulz of the center-left Social Democratic Party, steadfastly refuses to contemplate tax cuts at all.
And that’s about it. Tax policy is off the ballot in this month’s Dutch election, unless you count promises to make the Netherlands less attractive to foreigners as a “tax haven.” Taxes aren’t under discussion in Italy as it grinds through a constitutional crisis. Spain, under pressure from Brussels, is abandoning some of its earlier tax-cutting zeal and is hunting for extra revenue.
The question now is how much longer Europe could resist widespread tax reform if Mr. Trump brings in a 20% corporate rate alongside rapid deregulation—or what the consequences will be in terms of social-spending trade-offs to a new round of tax cutting. Dare to dream that Mr. Trump manages to trigger a new debate about competitiveness in Europe.
At least Europe can take comfort in the hope that the political cover Mr. Trump takes away by relegitimizing tax competition might be replaced with a different sort of cover—stronger American growth rippling across the Atlantic, and with it more fiscal and political room for European reformers.
It’s a positive, if still somewhat tenuous, thought that the U.S. president whose election is said to empower Europe’s fringe may also end up assisting the smarter contingent of the Continent’s mainstream.
Mr. Sternberg is editorial page editor of The Wall Street Journal Europe.
